The Backdoor Roth IRA: Why I Use It and How It Works, Step by Step
Updated: Oct 2
Key points
If your income is above the Roth IRA limits, you can still fund one through the backdoor: a nondeductible traditional IRA contribution, converted to Roth.
It works cleanly only if you have no pre-tax money in any traditional, SEP, or SIMPLE IRA on December 31 of the year you convert.
You can contribute for the previous year until the tax filing deadline, usually April 15.
The steps: open a traditional and a Roth IRA, contribute, let it settle, convert, and invest inside the Roth.
Form 8606 is what makes it tax-free on paper. File it every year you do a backdoor Roth.
The Roth IRA is my second favorite account, right after the HSA. (I wrote about the HSA and its triple tax advantage here.) For the last five years, I've maxed out my Roth IRA through what's called the Backdoor Roth.
If your income is above the Roth IRA limits, you may have heard that a Roth "isn't for you." That's only half true. The direct path is closed. A second path is still open, and it's fully legal: converting a traditional IRA to a Roth IRA has no income limit (IRS). It takes a few extra steps and one tax form. Let's look at the logic first, then the mechanics.
Where the Backdoor Roth IRA Fits
The backdoor Roth IRA isn't the first place your savings go. It comes after your pre-tax accounts are full. Here's the order this post assumes:
1. Your 401(k), maxed out. That's $24,500 in 2026 (IRS) of your own contributions, pre-tax or Roth. Contribute at least enough to get the full employer match, which comes on top of this limit.
2. HSA (health savings account), maxed out, if you're on an eligible high-deductible health plan.
3–4. Backdoor Roth IRA. This post.
3–4. Mega backdoor Roth, if your 401(k) plan allows after-tax contributions and Roth conversions.
5. Taxable brokerage account, for anything beyond that.
The two marked 3–4 can go in either order. If you haven't filled the first two yet, those come first. If you're still deciding between pre-tax and Roth in general, Roth vs Traditional: How to Decide When You Pay the Tax covers that choice. If you're weighing a Roth IRA against Roth 401(k) space, Roth IRA or Roth 401(k)? How They Differ and Which One to Fund First compares the two.
This order fits higher earners. If your income is under the Roth IRA limit or your plan's investment options are weak, a common alternative is to contribute up to the 401(k) employer match, then fund a Roth IRA, then return to max out the 401(k).
Why Use a Roth IRA at All
A Roth IRA (Individual Retirement Account) is funded with money you've already paid tax on. You get no deduction today. In exchange, you get three things:
Tax-free growth. Qualified withdrawals are completely tax-free. Qualified means two things. First, five tax years have passed, counted from January 1 of the tax year of your first contribution or conversion to any Roth IRA. Second, you're 59½ or older, disabled, or using the money for a first-time home purchase (up to $10,000 lifetime), or it's paid to your heirs after your death (IRS). No tax on dividends along the way, and no capital gains tax when you sell.
No required minimum distributions (RMDs). RMDs are the withdrawals the IRS forces from traditional accounts starting at 73, or 75 if you were born in 1960 or later (IRS, IRS regulations). A Roth has none during your lifetime (IRS), so the money can keep compounding for as long as you choose.
Access to what you put in. Money you contribute directly to a Roth can come out anytime without tax or penalty (IRS). With the backdoor, your money enters the Roth as a conversion instead. Slightly different rules apply, covered below.
Compare that to a taxable brokerage account. There, dividends are taxed every year and gains are taxed every time you sell. Over decades, that tax drag adds up.
At this point in the order above, your realistic choice is a Roth IRA or a taxable brokerage account. Your pre-tax savings are already maxed out through the 401(k), and above the income limits covered below, a deductible traditional IRA usually isn't available. The trade-off is size: you can put in $7,500 for 2026, or $8,600 if you're 50 or older (IRS).
How the Backdoor Roth IRA Works
Whether you can contribute directly to a Roth depends on your MAGI (modified adjusted gross income, roughly your adjusted gross income with a few items added back). Within the phase-out range, the amount you're allowed to contribute shrinks; above it, it's zero. For 2026:
Filing status | Full contribution | Phase-out | No direct contribution |
|---|---|---|---|
Single / Head of household | Under $153,000 | $153,000–$168,000 | $168,000+ |
Married filing jointly | Under $242,000 | $242,000–$252,000 | $252,000+ |
Married filing separately | — | $0–$10,000 | $10,000+ |
Above those numbers, the front door is closed. The backdoor works because of two rules that sit side by side:
Anyone with taxable compensation (wages, salary, or self-employment income) can contribute to a traditional IRA. Income only decides whether the contribution is tax-deductible. If you're covered by a workplace retirement plan, the deduction phases out between $81,000 and $91,000 for single filers. For married couples filing jointly, where the contributing spouse is covered, it phases out between $129,000 and $149,000 (IRS).
Converting a traditional IRA to a Roth IRA has no income limit (IRS).
Put them together. You make a nondeductible (after-tax) contribution to a traditional IRA, then convert it to a Roth. You've already paid tax on that money, and the IRS calls this your "basis." Converting basis isn't taxed again. The only thing taxed is any growth between the contribution and the conversion, which is why that gap is kept as short as possible.
The one condition: the pro-rata rule
This works cleanly only if you have zero pre-tax money in any traditional, SEP, or SIMPLE IRA. The IRS treats all of those balances as one pool. It checks the pool as of December 31 of the year you convert (IRS). Any conversion is then treated as a proportional mix of taxed and untaxed money. IRAs you inherited as a non-spouse beneficiary are tracked separately and don't go into your pool (IRS).
Here's an example. Say you have $67,500 of pre-tax money in an old rollover IRA, and you add $7,500 nondeductible. Only 10% of your total IRA money is basis, and Form 8606 applies that ratio (IRS) to the conversion. So only 10% of your $7,500 conversion ($750) is tax-free. The other $6,750 is taxed as ordinary income.
The December 31 date works in both directions:
It can undo a clean conversion. Say you convert in January, then leave your job in October and roll your old 401(k) into an IRA. That pre-tax money is in the pool on December 31, and January's conversion becomes mostly taxable.
It can also fix one. Pre-tax IRA money that you move into your current employer's 401(k) or 403(b) before December 31 doesn't count, because employer plan balances are excluded from the calculation. This works because only pre-tax money can be rolled from an IRA into an employer plan; your after-tax basis stays in the IRA (IRS). The pre-tax money leaves, the basis stays behind, and the conversion is clean. First confirm your plan accepts incoming rollovers.
If you expect to change jobs during the year, a 401(k) can stay in the old plan or move to the new employer's plan. Either keeps it out of the IRA pool.
Why stopping halfway doesn't help
If you can't deduct a traditional IRA contribution and you never convert it, the money sits in a traditional IRA. Growth is tax-deferred, but the earnings are taxed as ordinary income when you withdraw. RMDs apply at 73 or 75, depending on birth year (IRS, IRS regulations), and you track basis on tax forms for decades. That's little advantage over a taxable brokerage account, where long-term gains are often taxed at lower rates. The conversion is what makes the strategy work.
You have until April to do it for last year
IRA contributions for a tax year can be made until the tax filing deadline, usually April 15 of the following year. Filing extensions don't extend it (IRS). For 2026, you have until April 15, 2027. If you haven't done a 2026 backdoor Roth yet, there's still time.
Here's how that plays out. Say in February 2027 you contribute $7,500 to your traditional IRA, marked for tax year 2026, and convert it the same week.
Your 2026 tax return reports the nondeductible contribution on Form 8606 (IRS), Part I. There's no conversion that year, so the $7,500 becomes basis that carries forward.
Your 2027 tax return reports the conversion, using the 1099-R your brokerage sends in early 2028. The basis carried over from 2026 is what makes the conversion tax-free. The pro-rata check uses your IRA balances on December 31, 2027.
If you also make your 2027 contribution in 2027 and convert it, both conversions appear on the same 2027 Form 8606.
Getting money out later
Backdoor money enters the Roth as a conversion, not a regular contribution, so it follows the conversion rules:
The order. Roth IRA withdrawals come out in a fixed order: regular contributions first, then conversions (oldest first), then earnings. Within each conversion, the part that was taxed at conversion comes out first (IRS, Treasury regulation).
No income tax on converted money. You already paid tax on it, so taking it back out isn't taxed again.
The penalty barely applies. Each conversion has its own five-year window, starting January 1 of the year you convert. If you're under 59½ and withdraw converted money within that window, the 10% penalty applies, but only to the part of the conversion that was taxable (Treasury regulation). In a clean backdoor Roth, that part is $0, or a few cents of interest. So the converted amount can come out almost anytime, without tax or penalty.
If the pro-rata rule applied. If pre-tax IRA money made part of your conversion taxable, that taxable part carries the five-year penalty window.
Earnings. These are tax-free once the withdrawal is qualified: five tax years counted from January 1 of the tax year of your first contribution or conversion to any Roth IRA, plus age 59½ or one of the other qualifying events above (IRS). Withdraw earnings earlier and you may owe income tax plus a 10% penalty, unless an IRS exception applies (IRS).
The Roth is a long-term account. Still, knowing the money you converted isn't locked away can make it easier to commit to.
How to Do a Backdoor Roth IRA, Step by Step
Before you start: check every traditional, SEP, and SIMPLE IRA you own. The goal is a $0 pre-tax balance. Do this first, because a conversion can't be undone: since 2018, a conversion can't be recharacterized back to a traditional IRA (IRS). If pre-tax money makes it taxable, that tax bill stands.
Step 1: Open a traditional IRA and a Roth IRA at the same brokerage. Fidelity, Schwab, and Vanguard all support this online. Keeping both accounts in one place makes the conversion an internal transfer.
Step 2: Contribute to the traditional IRA. Contribute up to $7,500, or $8,600 if you're 50+ (IRS), and select the tax year. The brokerage won't ask whether it's deductible. You declare that on your tax return.
Step 3: Let it settle, and don't invest it. Leave the money in cash for a day or two until it settles, meaning the deposit has cleared and the cash can be moved. If a few cents of interest accrue, they're taxable, which is a small amount to report and nothing more.
Step 4: Convert the full balance to your Roth IRA. If the brokerage asks about tax withholding, decline it. In a clean backdoor there's no tax due, and withheld money is treated as a distribution, not a conversion, so it can be taxed and penalized if you're under 59½ (IRS).
Step 5: Invest inside the Roth IRA. Converted money lands as cash. Until you buy investments (index funds, ETFs, or whatever fits your plan), it isn't growing.
Step 6: File your taxes correctly. This is the step that makes the whole thing tax-free on paper:
Form 8606 (IRS) reports your nondeductible contribution in Part I, which establishes your basis. In a year you convert, Part I also works out how much of the conversion is tax-free, and Part II reports the conversion and its taxable amount (IRS).
Form 1099-R is the form that reports distributions and conversions from retirement accounts. Your brokerage sends one for the year the conversion happened.
Form 5498 (IRS) confirms your contribution. It usually arrives by the end of May, after the filing deadline, so you don't need to wait for it.
Check Form 1040 (IRS) lines 4a and 4b (on the current Form 1040). Line 4a should show the converted amount. Line 4b, the taxable amount, should be $0 or close to it if interest accrued.
In tax software, enter both the nondeductible contribution and the conversion. If you skip the contribution entry, the software may treat the whole conversion as taxable.
Form 8606 is also your running record of basis. Its total carries from one year's form to the next. That matters most when a contribution and its conversion fall in different tax years: if the basis from last year's form doesn't carry forward, this year's conversion looks fully taxable. Not filing Form 8606 when it's required carries a $50 IRS penalty (IRS). Keep a copy of every year's form. Then repeat the process next year.
Common Mistakes
Converting with pre-tax IRA money in the pool. Part of the conversion becomes taxable, and the conversion can't be undone (IRS).
Contributing directly when your income might end up over the limit. An excess Roth contribution is taxed at 6% for every year it stays in the account. You can avoid that by withdrawing it, or recharacterizing it as a traditional IRA contribution, by your tax filing deadline, including extensions (IRS). If your income is close to the limit, the backdoor avoids the question.
Investing before you convert. It's allowed, but any gain before the conversion is taxed as ordinary income when you convert. Keeping the money in cash and converting within a few days keeps that amount near zero.
Skipping Form 8606. Without it, the conversion can look fully taxable, and you lose the record of your basis.
Leaving converted money in cash. It isn't growing until you invest it.
If You're Married
Each spouse has their own IRA, so each can do their own backdoor Roth. That's up to $15,000 combined for 2026, or $17,200 if both are 50+ (IRS). A non-working spouse can contribute through a spousal IRA (IRS), as long as you file jointly and the working spouse has enough taxable compensation. The pro-rata rule applies to each person separately. Each spouse needs a zero pre-tax IRA balance and their own Form 8606.
How to Think About It
The backdoor Roth combines two steps that are each allowed on their own. It's also not the right fit for everyone. Here's how I'd frame the decision:
Is your income above the direct Roth limit, or close enough that it might be?
Do you have any pre-tax IRA money, and can your employer plan take it?
Have you already maxed out your pre-tax 401(k) and HSA?
If the answers point toward the backdoor, the mechanics are straightforward once you understand the logic. It's a handful of clicks and one form, once a year.
Summary
The backdoor Roth IRA combines two rules: anyone with taxable compensation can contribute to a traditional IRA, and conversions to Roth have no income limit. You contribute after-tax money, convert it, and pay tax only on any growth in between, which is close to $0 when you convert promptly. The one condition is having no pre-tax IRA balances at the end of the conversion year. The rest is a handful of steps once a year, plus Form 8606 at tax time.
FAQs
Is the backdoor Roth IRA legal? Yes. Traditional IRA contributions have no income limit, only limits on whether they're deductible, and conversions to Roth have no income limit (IRS).
How much can I put in for 2026? $7,500, or $8,600 if you're 50 or older (IRS).
What if I have money in a rollover IRA? Pre-tax IRA balances make part of the conversion taxable under the pro-rata rule, calculated on Form 8606 (IRS). Moving that money into your current employer's 401(k) before December 31, if the plan accepts it, keeps it out of the calculation.
Do I pay tax on the conversion? If you have no pre-tax IRA money, only on any earnings between the contribution and the conversion (IRS).
What happens if I don't file Form 8606? The IRS can charge a $50 penalty, and you lose the record of your after-tax basis (IRS).
Can I undo a conversion if it turns out to be taxable? No. Conversions made since 2018 can't be recharacterized back to a traditional IRA (IRS). Check for pre-tax IRA balances before you convert.
Can my spouse do a backdoor Roth too? Yes. Each spouse has their own IRA and their own limit, and a non-working spouse can contribute through a spousal IRA if you file jointly (IRS).
Transparency Note: I'm the human behind the keyboard — the ideas, stories, and decisions here are mine. I collaborate with AI throughout the writing process: brainstorming, drafting, smoothing out grammar and flow, assisting with research, and creating the visuals you see throughout my posts.
Disclaimer: The information provided in this blog post is for educational and informational purposes only. I am an AFC® (Accredited Financial Counselor) Candidate, not a Certified Financial Planner (CFP®), Certified Public Accountant (CPA), tax advisor, attorney, or Investment Adviser Representative (IAR). The content herein is not intended to be a substitute for investment, tax, or legal advice from a licensed professional. Always seek the advice of a qualified professional with any questions you may have regarding your individual financial situation. The opinions expressed are my own and do not represent the views of my current or former employer.
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